New Deal policy makers shared a deep fear that democratic capitalism could not function unless Wall Street was tightly controlled. After all, Europe was sinking into the fascist camp while the new Soviet Union seemed invulnerable to the global depression. As a result, to put it crudely, the New Dealers quickly regulated the hell out of high finance through a myriad of programs including the formation of the S.E.C and Glass-Steagall. The goal was to turn Wall Street into a sleepy place to work, rather than an adrenalin-fueled arena of stock manipulation and fraud. At the same time income tax rates on the wealthy sky-rocketed with top marginal rates reaching over 90 percent. The results were nothing short of stupendous. • For more than a quarter of a century there were no financial crises anywhere in the globe (except Brazil in 1964). • The average wage in the financial sector collapsed so that its compensation was similar to the average wage of non-financial jobs. • Inequality fell rapidly -- the top one percent accounted for more than 23 percent of all income in 1928. By the 1970s it had fallen to less than 9 percent. These policies gave birth to middle-class America, as the average income of working families grew steadily during the WWII period. This was the new America that would out-compete world communism for the support of working people all over the world. Then we forgot.
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